This site uses cookies to store information on your computer. Some are essential to make our site work; others help us improve the user experience. By using the site, you consent to the placement of these cookies. Read our privacy policy to learn more.

Latest Stories

Latest Stories

Financial Accounting

Related

TOPICS

Uncategorized Article

Changes for FASB No. 65

Although the FASB exposed its proposed mortgage amendment for
only 45 days, it still received a number of helpful suggestions from
the accounting community, some of which were incorporated in the
recently released final document. FASB Statement no. 134,
Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise, amends Statement no. 65, Accounting for Certain
Mortgage Banking Activities, issued in 1982.

According to Kevin Stoklosa, an assistant project manager at the
FASB, the board made three major changes to the ED. The proposed
statement broke out retained securities between those held for
salewhich would be required to be put in tradingand those not held for
salewhich would have the option of being classified as trading,
available for sale or held to maturity in accordance with Statement
no. 115, Accounting for Certain Investments in Debt and Equity
Securities . The board believed any retained security that the
company intended to sell should go into trading.

However, comment letters, including one from the Mortgage Bankers
Association, criticized this division, pointing out it did not exist
in other types of securitizations. The FASB dropped this provision
after it was pointed out that Statement no. 115 can be interpreted to
say an entity cant even classify something as available for sale if
there is a specified period of time in which to sell it. But the main
reason for the change, according to Stoklosa, was that the board
agreed with respondents that the accounting for securities retained
after the securitization of mortgage loans should be the same as the
accounting for securities retained after the securitization of other
types of assets. Said Stoklosa, Now, a mortgage banking enterprise can
go right to Statement no. 115 to make a classification, choosing
trading, available for sale or held to maturity. The only requirement
the new statement adds is that if you have a sales commitment in place
you must put it into trading. Thus, Statement no. 134 accounting is
more consistent with other guidance.

The change also affected retained nonsecurity interests. To
be consistent, the board eliminated the trading requirement for
retained nonsecurity interests that are held for sale. The portions of
Statement no. 65 relating to nonsecurity interests remain unamended.
The board believed it would have been inconsistent to require a
trading classification for retained nonsecurity interests intended to
be sold if it no longer required one for retained security interests
intended to be sold.

The final change was in the transition: The ED said the guidance
would be effective on issuance, but some small mortgage companies said
it would be hard to make the change so quickly. The final statement is
effective for the first fiscal quarter beginning after December 15,
1998, with earlier application permitted.

There are over 30 million small businesses in the U.S., and many of them are optimistic in their outlook. Are you familiar with the obstacles and opportunities they are facing? Test your small business acumen with this quiz sponsored by Chase Ink®.